Buoyant housing market keeps consumer confidence from fading in uneven economy
Imagine if the housing market was covered in the news like the stock market: “Split-level ranch homes from the 1970s in the Midwest fell today after a forecast for a colder than usual winter.”
“Mid-century threebedrooms in the MidAtlantic rallied as new Census Bureau data showed population growth.”
“Renovated bungalows were steady despite new import data that led to lumber and drywall prices falling.”
But, it doesn’t work that way, does it?
More Americans own their homes, or at least co-own them with a lender, than own stocks. The wealth effect of housing can be greater than any stock market rally. This may help explain why, despite the S&P 500 stocks in a bear market, consumer confidence has held up pretty well.
After declining through the spring and early summer, consumer attitudes have improved even as inflation remains unbearably high, interest rates are rising fast and geopolitical instability continues.
Home price increases have gotten smaller but haven’t stopped. Owners who have several years in homes are probably sitting on a lot of equity. Owners’ equity jumped almost 20% in the second quarter compared to a year earlier, according to Federal Reserve data. That’s almost $5 trillion in gains U.S. homeowners are sitting on.
Mortgage refinancing has all but stopped thanks to borrowing rates skyrocketing. Yet, demand for home equity loans and lines of credit jumped
50% during the first five months of the year, according to Equifax. Homeowners are tapping into their home’s increased values at the highest rates in more than a decade.
Homeowners and banks are not in jeopardy of experiencing another 2008style housing collapse. There is less leverage today. While borrowing rates in the past few years were ultra-low driving up home values, lenders were more disciplined and buyers have more skin in the game. The supply of homes for sale remains very low — less than three and a half months based upon the pace of existing home sales in August.
Still, the stability of the housing market is vital, if the Federal Reserve has a chance of pulling off a “soft-ish” landing, as Chairman Jerome Powell recently described the agency’s preferred economic outcome as it fights inflation. The latest data on a glide path for housing comes Thursday with the September existing home sales report.
Higher borrowing costs and lower homes inventory make a slowdown — not a stop — natural for housing.